• 2022-06-15
    PresidentObama’srecenttriptoChinareflectsasymbioticrelationshipattheheartoftheglobaleconomy:ChinausesAmericanspendingpowertoenlargeitsprivatesector,whileAmericausesChineselendingpowertoexpanditspublicsector.Yetthisarrangementmayunravelinadangerousway,andifitdoes,themostlikelyculpritwillbeChineseeconomicovercapacity.
    SeveralhundredmillionChinesefarmershavemovedfromthecountrysidetothecitiesoverthelast30years,inoneofthelargest,mostrapidmigrationsinhistory.Tohelpmakethiswork,theChinesegovernmenthassubsidizeditsexportersbypeggingtherenminbiatanunnaturallylowratetothedollar.Thishassupportedrelativelyhigh-payingexportjobs;additionalsubsidieshaveincludeddirectcreditallocationandpreferentialtreatmentforcoastalenterprises.
    Thesearen’ttherecommendedpoliciesyouwouldfindinabasiceconomicstext,butit’shardtoarguewithsuccess.Mostimportant,ithasgivenmanymoreChineseastakeinthefutureoftheirsociety.Thosesamesubsidies,however,havespurredexcesscapacityandcreatedadangerouspolitical,dynamicinwhichtheseinvestmentshavetobeproppedupatallcost.
    Chinahasbeenbuildingfactoriesandproductioncapacityinvirtuallyeverysectorofitseconomy,butit’snotclearthatthelatestroundofinvestmentswillbeprofitableanytimesoon.Automobiles,steel,semiconductors,cement,aluminumandrealestateallshowsignsoftoomuchcapacity.InShanghai,thecentralbusinessdistrictappearstohavehighvacancyrates,yetbuildingcontinues.
    Chineseplannersnowtalkoftheneedtorestrictinvestmentinsectorsthatareoverflowingwithunsoldproducts.Theglobalmarketisnolongerstrong,anddomesticdemandwasneverenoughinthefirstplace.Regionalofficialshaveanincentivetopropuplocalenterprisesandproductionstatistics,evenifthatmeanssupportingprojectsoraccountingpracticesthatarenotsustainable.(315Words)
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